Insurers still grappling with costly variable-annuity promises

April 13, 2018 by
Greg Iacurci

Insurance companies are still trying to wriggle out of promises made years ago to consumers of their variable-annuity products, as certain contract features have proven too generous in light of market conditions such as persistently low interest rates.

Most buyouts are sought for contracts with riders issued before or around the financial crisis, said Peter Lamond, variable annuities product director at Wink Inc., a market research firm.

Low interest rates made it difficult for companies to hedge for the risk of the riders, particularly with income benefits continuing to accrue even as contract values declined because of the stock market meltdown, Mr. Lamond said.

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In addition to contracts with riders that had “rich features,” buyouts are typically sought for those contracts that may have allowed “more aggressive investment options and had fee structures that may not have been flexible or large enough,” Mr. Lamond said.

Buyouts can take the form of surrendering the contract without a surrender charge or adding additional cash value to an existing or new contract and terminating the rider, for example, he said.